A Slow Comeback for Housing in 2012; Cautious Hope for 2013

by 31 Dec 2012

FHA-MIP-to-Increase-in-April.jpg" title="Housing" width="275" />A slight return to stability was experienced by most regional housing markets of the United States in 2012. Two of the most closely-watched indices that measure pending home sales and purchase prices posted steady gains several months in a row. The Standard & Poor’s/Case-Shiller home price index report for the third quarter showed a 3.6 percent year-over-year increase, and the National Association of Realtors (NAR) reported that pending home sales in October climbed up 5.2 percent since September.

Not Enough Traction

The consensus among housing analysts with regard to home prices in 2012 was that the long-awaited bottom was finally reached, but not everyone thinks that rising home prices and growing demand can be sustained. The skeptics point out that home prices in half of the metropolitan areas tracked by the S&P/Case-Shiller report were off by almost 2.5 percent from early 2009 until the summer of 2012, when they finally started rising in unison. Even with the price bottom and increased sales activity, median prices are still way off their highs in 2006.

A major factor stimulating the housing recovery in 2012 has been the monetary policy intervention by the Federal Reserve Bank and its effect on mortgage interest rates. Those who doubt the housing recovery has wings argue that such intervention makes it artificial and not organic. They also point out that the recovery is being mostly felt in those regional markets where prices dropped massively, such as Miami and Phoenix. Sales in most of the Midwest and the South remain stagnant.

Reelection and Home Builder Stimulus

Election history shows that incumbents like President Barack Obama have been good for home prices, but this fact is not the only one in favor of a continuous housing recovery. Markets like Portland and Phoenix, where home prices have respectively bounced back by 20.4 percent and 20 percent in 2012, are experiencing healthy demand. A widely supported prediction for 2013 is that median home prices will climb by another 5 percent. A sudden rash of pending foreclosures could suppress hopes, but home builders are bringing even more positive expectations.

The most recent report from the U.S. Census Bureau on residential construction indicates that housing starts are back to their 2008 levels. The most prominent American home builders have enjoyed healthy financial returns in 2012, thanks to increased activity brought on by finicky buyers who are increasingly demanding new homes.

Even with reelection optimism, the upticks in demand and new housing starts, the recovery in 2013 is unlikely to carry the same momentum experienced from 2000 to 2007. Getting back to $238,000 median home prices will not happen too soon in a normal housing market. With a projected 3.7 percent average increase estimated for the next few years, it may take an entire decade to get back to such prices.

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